- YB+42Positive
yieldbasis (@yieldbasis)
Bitcoin doesn’t pay you. Its market can. Yield Basis: One Year In The past week marks one year since the first Yield Basis markets went live. We built it around a simple idea: If Bitcoin can’t pay you, its market can. One year since launch: Yield Basis has captured 1.29% of the total BTCFi market YB’s Impermanent-loss-protected pools account for 19% of all BTC deployed across DEX pairs Many challenges still remain to be solved to further improve the protocol’s profitability and scalability Bitcoin: self-sovereign, scarce, but not productive. Bitcoin was never designed to be a productive asset. It has no issuer, no intrinsic yield, and no built-in pathways to generate one. In 2022, Warren Buffett said he would not pay $25 for all the Bitcoin in the world, because “it isn’t going to do anything.” No doubts: money was never supposed to pay you. It generates yield by being deployed in external markets. The simplest examples are credit, debt, and lending markets. Bitcoin is designed to be a scarce asset, appreciate its value against inflationary currencies and belong to no one else but you. On that argument, Bitcoiners are right. Bitcoin became the most trusted asset in crypto, and institutions, public companies and even governments now own it. Challenge: yield generation for a scarce asset Due to its nature, Bitcoin cannot simply follow fiat currencies approach and generate meaningful yield from credit markets: There is simply no demand to borrow Bitcoin and pay relatively high interest for it. Economic actors want to take debt in currencies that could be directly deployed into economic activity, while the results of capital deployment could grow against the debt value. Borrowing assets that could rapidly multiply in value over time is risky and possible only for certain specific speculative cases such borrowing for shorting. At the same time people trade BTC and borrow against it: 1. Every day, billions of dollars of BTC change hands, and every trade pays a fee to the capital that makes the market. 2. BTC holders want to unlock productivity for their capital without selling Bitcoin. They borrow assets against BTC, earn income from these assets, and finally convert proceeds to Bitcoin. So: Bitcoin doesn’t pay you. Its market can. More than one year ago we stuck to this vision. Today this thesis is more relevant than ever. The State of Bitcoin Yield Recently, we made a “The State of BTCFi” - a joint report with @valueverse_ai examining how Bitcoin is actually being put to productive use across BTCFi. The full version will be published soon. In the September 20 cutoff there were approximately 104,5k BTC deposited into DeFi protocols, equivalent to about 0.518% of circulating supply. Additionally, 141.8k exists as wrapped assets (tokenized Bitcoin) but isn’t deployed anywhere: As it can be seen, the productive Bitcoin market is tiny versus the existing supply. At the current stage of BTCFi, only two wrapped bitcoins gained significant traction, wBTC and cbBTC: The market for tokenized BTCs is shared by two issuers - BitGo and Coinbase, issuing wBTC and cbBTC. Below, we observe different approaches for generating Bitcoin yield and their adoption: The biggest share of tokenized BTCs are deployed for lending earning ~0.01% on average and often used simultaneously as a collateral for taking BTC-backed loans. The liquidity provision to DEXes offers higher APY than lending markets since it yields from trading fees. However, AMMs expose capital to a known problem: Impermanent Loss. A liquidity position can underperform holding the original deposited assets as their relative prices change and trading fees often even don’t cover that. This is the reason why total liquidity deployed to DEXes accounts for ~7000 BTC only. One year ago, Yield Basis delivered a product that protects LPs from IL in long-term time periods. Such an approach allowed protocol to gain significant traction within one year and capture initial market share: Yield Basis accounts for 19% of all BTC deployed across DEXes, while being the only venue offering Bitcoin yield without impermanent loss exposure Overall, Yield Basis captures 1.29% of the total productive Bitcoin market. We believe that current BTCFi adoption is still in the early stage and could gradually gain more traction in the future: The first year of Yield Basis We want to share our thoughts and reflections. It’s a kind of takeaway from the first year of protocol operation. Yield Basis has been created with a “True Defi” philosophy: fully decentralized, non-custodial, onchain-governed. It is a quite complicated and novel onchain primitive that was never existing before. When tech is brand new, only operation in a real onchain environment can demonstrate all edge cases and improvement pathways. It evolves with testing followed by upgrades and new product versions. During the first year protocol faced: Scalability problems (several solutions were delivered) Pool efficiency problems (v2, v3 were delivered) Multiple migrations (since code is non-upgradable and non-custodial, there is no authority to move users’ funds) Bitcoin bear market and extreme downside volatility conditions TRDs and drawdowns in value of user positions due to pools’ imbalance You can see all protocol statistics on dedicated analytical sources: https://yieldbasis.com/analytics/markets https://yb.valueverse.ai/ What protocol didn’t face during the first year: security incidents. There were no security incidents with protocol itself or any code dependency (Curve.fi tech, crvUSD, and BTC wrappers). The security-first vision, dependence minimalism, and transparent changes in codebase approved by veYB governance played out as a security strategy. We are extremely grateful to our community of LPs and token holders that were supporting the protocol during this year: The community that waits for PPS/TRD recovery and trust the project even during the 15% drawdowns and migrates to new pools if necessary The community that doesn't need artificial incentives or any kind of liquidity deals to come and be here (Yield Basis avoided all such requests). The community that publicly supports the protocol, explains how it works, builds analytical tools, and helps everyone understand what ybBTC is and how it works. We are ready to announce the following tech upgrades for Yield Basis. They will make it more efficient, improve yields, and allow LPs to earn even during low-volatile periods. Thank everyone for being here. We are still early. YB. Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. All market data, yields, protocol metrics, and performance figures reflect the periods specified and may change over time. Past performance is not indicative of future results. References to future protocol development reflect current plans and are subject to change. DeFi involves risks, including smart contract, market, liquidity, and asset-related risks. Always do your own research.